In the Money: 5 Things to Know
Israel strikes Iran, futures come off the lows, oil spikes, safe havens catch bid,
Friday the 13th. Stay safe out there!
Cole Smead of Smead Capital Management did not hold back in his return to In the Money with Amber Kanwar. After presciently suggesting MEG Energy could be a takeout candidate in March, he returns to the show and drops another combination he could see by year end. He explains why he thinks commodities, including Canada’s energy sector, are going to outperform the S&P 500 over the next five years.
War, what is it good for?: Israel has launched targeted strikes in Iran killing top generals in a bid to stop their nuclear weapon ambitions. Iran, for its part, says it will continue the nuclear program despite strikes. The prospect of an escalating war that could draw in the United States is stoking a flight to safety this morning. Naturally, oil is surging. Crude is up 8% and at $73/bl it is trading at the highest level in nearly 6 months. Gold is up 1.5% trading at a fresh record high. Both these factors could propel the TSX to another fresh record high. Meanwhile, US equity futures are under pressure. However, Andrew Brenner of Natalliance notes that they are coming off the worst levels. The sour mood in stocks is ahead of the G7 leaders meeting this weekend where investors will be watching for any signs of trade deals. The Federal Reserve will also be making its rate decision and pressure is ramping up for them to cut interest rates as inflation has been coming in weaker than expected.
Crude perspective: Will the gap up in energy have legs? Historically, Bespoke Investment Group notes, that is not the case. “…A week after that opening gap, it was down four out of five times for a median decline of 2.2%,” they wrote in a note to clients about the US oil fund (USO), “Historically, at least, these sharp gaps higher haven’t had a lot of follow-through.” However, they note that crude has been putting in a sustained uptrend. Noting that the ETF has cleared a key technical hurdle. “It also cleared what could have been a formidable level of resistance in the $75 range,” they wrote. For perspective on how big this jump is relative to other geopolitical flashpoints, take a look at the chart below courtesy of Jim Reid at Deutsche Bank.
Photoshop growth: Shares of Adobe are under pressure after its sales outlook failed to appease skeptics about its ability to adequately captialize on AI. The big debate around Adobe is whether it is disruptor or distrupted by AI. Adobe’s results beat expectations and it boosted its forecast. “While guidance was raised and management remains positive around demand generation, it feels like it will take more time to prove out these initiatives and quiet concerns of competition around GenAI,” wrote RBC’s Matthew Swanson. He’s got a buy on the stock. It is cheap, trading at 20x forward earnings. But that doesn’t appear to be enough for some analysts. “…Until there is a bigger effort on the part of management to reframe the investment narrative and make the case for why Adobe’s multiple can re-rate from here, we expect investors are likely to remain on the sidelines,” wrote Evercore’s Kirk Materne.
Controlling controllables: Shares of RH are surging nearly 19% after clearing a low bar in its quarterly results. The furniture retailer formerly known as Restoration Hardware has been hit by a one-two punch of tariffs and a slow housing market. RH missed sales forecasts but the margins were slightly higher and they maintained their full year outlook which appears to be a relief for investors. The company is taking steps to reduce reliance on China saying that it will only account for 2% of supply in future quarters, down from 16% right now. They are delaying new product launches until they have more clarity around tariffs. It’s not a perfect quarter, but enough to spook the bears with 20% of the shares outstanding short.
Sobering: Canadians are on strike from drinking US wine. Wine exports from the US to Canada dropped a whopping 93%. Canada happens to be the largest market for US wine according to Bloomberg. Yet another indication of how Canadians are changing their habits in response to the trade tensions with our southern neighbours.
Submit your questions by emailing us at questions@inthemoneypod.com!
